Skip to main content
No. of Recommendations: 0

I'm don't have anything against those hardworking dividends, I just want them to get to work earlier and work longer hours. Lets say you put 2K into stock X in a brokerage account year 1. Let's say the yield is 3% or $60 for the first year. If you have more money to put in at the end of the 1st year fine, you buy one extra share or so with the cash from dividends. But here are some advantages of the DRiP, which you probably already know: the first quarter dividends go in for .75 of a year etc.,etc.,etc. and they go in for free or less than the cost of commission, which probably impacts your yield a lot especially in the early years(when you'd be ill-advised to spend $15 commission to put let's say $150 in quarterly dividends in). And think of year 20, where let's say due to some spectacular growth and additional capital paid in your account is worth 250K, with the same dividend yield of 3%. The $1,875/QTR you're now getting requires you to pay commissions four times a year in a brokerage account v. free and immediate in a DRiP.

Don't get me wrong, the freedom and liquidity of owning stock in a brokerage account has major advantages, the main one being you can sell underperforming stocks and immediately put them into a better performing Maker or Breaker stock. BUT, if you have a stock that you're sure you're going to hold for the long haul it probably grows faster due to the more frequent compounding in a DRiP. But the $.50 question is how much faster?

I think it would be interesting to run a simulation to see how fast growth would occur in a DRiP v. a brokerage account and I can't believe that someone in academia or Wall Street hasn't done it already. Maybe with all the fools out there that are not asleep at their monitors after reading this long-winded post someone knows the answer. Thanks.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.